Azerbaijan’s ruling elite operated a secret $2.9bn (£2.2bn) scheme to pay prominent Europeans, buy luxury goods and launder money through a network of opaque British companies, an investigation by the Guardian reveals.

Leaked data shows that the Azerbaijani leadership, accused of serial human rights abuses, systemic corruption and rigging elections, made more than 16,000 covert payments from 2012 to 2014.

Some of this money went to politicians and journalists, as part of an international lobbying operation to deflect criticism of Azerbaijan’s president, Ilham Aliyev, and to promote a positive image of his oil-rich country. There is no suggestion that all the recipients were aware of the original source of the money. It arrived via a disguised route.

But the revelations once again highlight the use of the lightly regulated British corporate landscape to move large sums of money around, beyond the purview of regulators and tax authorities. Seven million pounds was spent in Britain on luxury goods and private school fees.

The cash, contributed by an opaque array of paymasters in Azerbaijan and Russia, travelled to the British companies – all limited partnerships registered at Companies House in London – via the western financial system without raising red flags. One of Europe’s leading banks, Danske, processed the payments via its branch office in Estonia.

Danske Bank said “money laundering and other illegal practices” had taken place. It first noticed the irregular payments in 2014. Estonia’s financial regulator said systems designed to stop money laundering at the branch had failed.

The scheme has been nicknamed the Azerbaijani Laundromat. Confidential banking records were leaked to the Danish newspaper Berlingske and shared with the Organized Crime and Corruption Reporting Project (OCCRP), the Guardian, and other media partners. The data covers a 30-month period. It may show the tip of an iceberg.

The leaked bank records show multiple payments to several former members of the Council of Europe’s parliamentary assembly, Pace. One is Eduard Lintner, a German ex-MP and member of the Christian Social Union, the Bavarian sister party to Angela Merkel’s ruling Christian Democrats. Another is the Italian former chair of the centre-right group in Pace, Luca Volontè.

The payments came at a time when Azerbaijan was under fire for arresting human rights activists and journalists, and for holding rigged elections. The regime sought to blunt criticism from Europe and the US by allegedly bribing delegates in what has been called “caviar diplomacy”.

This intensive lobbying operation was so successful that Council of Europe members voted against a 2013 report critical of Azerbaijan.

Lintner stood down as an MP in 2010, but remained a firm supporter of Azerbaijan. He founded the Society for the Promotion of German-Azerbaijani Relations in Berlin, which received €819,500 (£755,000). One €61,000 payment was made two weeks after Lintner returned to Berlin from a trip to Azerbaijan where he monitored the country’s 2013 presidential election. He said the poll was up to “German standards” – in direct contrast to official election observers who found “significant problems”.

Lintner says he received the money for his society, did not personally benefit, and was not an MP or Council of Europe member at the time. An Azerbaijani NGO paid for his election trip, he says. He says he has no knowledge of the original source of the payments received.

Details of cash given to Volontè emerged in 2016 and caused outrage. He received more than €2m in instalments via his Italian-based Novae Terrae foundation. Prosecutors in Milan have indicted him for money laundering and corruption.

Volontè denies wrongdoing. He is seeking to have the case thrown out.

The data also shows money being paid via the British companies to Kalin Mitrev, a Bulgarian appointed last year to the board of the London-based European Bank for Reconstruction and Development. Mitrev received at least €425,000 for private consulting work from a local Azeri company, Avuar Co. He acknowledges the payments and says they were for legitimate business consultancy. He denies all knowledge of the conduit used to execute them or the original source of the funds.

“All the income, generated by activities in different countries, was duly reported and taxed in my country of residence, Bulgaria,” Mitrev said. His consultancy work stopped when he joined the London bank, he said.

The revelation that her husband consulted for an Azeri company might prove awkward for Mitrev’s wife, Irina Bokova, who is the director general of Unesco. Bokova has bestowed one of Unesco’s highest honours, the Mozart Medal on Azerbaijan’s first lady and vice-president, Mehriban Aliyeva. She also hosted a photo exhibition at Unesco’s headquarters in Paris, entitled Azerbaijan – A Land of Tolerance. The Heydar Aliyev foundation organised the event.